Never Let the Threat of a Manufactured Crisis Go to Waste

There’s been a lot of speculation about the motives of the Austerians — those who want to begin balancing budgets now because they believe that’s what markets want. For example, Paul Krugman attributes it, in part, to

moralizing and posturing. Germans tend to think of running deficits as being morally wrong, while balancing budgets is considered virtuous, never mind the … economic logic. “The last few hours were a singular show of strength,” declared Angela Merkel … after a special cabinet meeting agreed on the austerity plan. And showing strength — or what is perceived as strength — is what it’s all about.

But there is another argument based upon the notion of “never let a crisis — or the manufactured threat of one — go to waste.” This is an opportunity to “starve the European Beast” in the eyes of many European conservatives, and there are those who are using the “that’s what markets want” argument as cover for an ideological agenda:

The spectre of laissez-faire stalks Britain, by Jeremy Seabrook, CIF: The relish with which David Cameron announced that our whole way of life would be affected for years by impending cuts, and no one in the land would be exempt from the asperities about to be inflicted, suggested to many that he and his fellow cabinet-millionaires will probably weather the coming storm better than the rest of us.

His parade of Margaret Thatcher, who resembled nothing so much as a faded kabuki performer, outside 10 Downing Street, was also highly symbolic. It was a redemptive moment, the “ultimate” triumph of policies she advocated (but did not entirely follow) 30 years ago. It exhibited the qualities of purification ritual, reversion to a more severe form of capitalism; and in the process a transformation of nanny state into stepmother state.

Nick Clegg’s pious assertion that cuts would be fair and compassionate was at odds with Cameron’s gusto, which is familiar enough in Conservative rhetoric: Cameron confronting an overweening state, which will be shrunk so the private sector might flourish once more. When he said the effects of his policies would be felt for decades to come, he meant something more than a mere diminution of the structural deficit. He admitted as much…

While cutting back big government may appear a matter of severe practicality,… this is also a declaration of faith, a solemn renewal of Conservative vows. … The right continues to yearn with insistent nostalgia for a free market, burdened only by minimal demands of government, defense and law and order. The greatest obstacle to this state of perfection is, of course, the poor, whose demands upon the state have always been seen as an encumbrance to its sublime mechanism.

“Pauperism” long ago took on the color of culpability. The distinction between the idle and improvident poor and the “deserving” goes back at least to the Elizabethan poor law. It took on a new force in the early industrial era, which saw an unprecedented growth in pauperism. The enthusiasts of laissez-faire concluded that the evil was compounded by efforts to relieve it, and helping the poor only increased their number. Everything indicated that “natural” processes should be allowed to take their course.

Today’s detestation of “big government” stems from this same source, and the affection of Cameron and his colleagues for the “big society” is a euphemism for the reduction of public funds in assisting the poor: rolling back the state, leaving the market to distribute its rewards in accordance with the natural order of things. Those who have rarely come closer to nature than on a golf course depend heavily for their ideological rationale upon an archaic natural imagery…

In this version of the world, the market mechanism is as flawless a creation as the earth, and should remain untouched by the hand of meddlers, whose only effect is to upset its power to enrich us all. …

Whatever the real extent of the “structural deficit”, the Conservatives, true to their faith in the economy-as-nature, have a powerful urge to wield the axe to dead wood; as they do so, they are bound to exaggerate the pruning required to cut back the luxuriant growth of Labour’s state. …

Just to be clear about my own views on government intervention, I am advocate of government intervention to fix important market imperfections (and I don’t think markets fix these on their own), and I don’t think we are aggressive enough in this area. But I am not much of a redistributionist. I would rather have the playing field be level so that everyone has a relatively equal chance at success, and the chips will fall where they fall. Some people may still need assistance under such a system, but mostly the outcome would be fair. That’s the first best choice for me, government intervention to ensure that everyone has a relatively equal chance in life. But we are far from that outcome, important inequities still exist that disadvantage some people relative to others, and so long as those inequities persist government has a role to play in correcting them. This may necessarily involve some redistribution of income, especially the income earned as a result of the unfair advantage.

Mark Thoma is a member of the Economics Department at the University of Oregon. He joined the UO faculty in 1987 and served as head of the Economics Department for five years. His research examines the effects that changes in monetary policy have on inflation, output, unemployment, interest rates and other macroeconomic variables with a focus on asymmetries in the response of these variables to policy changes, and on changes in the relationship between policy and the economy over time. He has also conducted research in other areas such as the relationship between the political party in power, and macroeconomic outcomes and using macroeconomic tools to predict transportation flows. He received his doctorate from Washington State University.